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Managerial Economics (Froeb) EXAM 2 KU
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Managerial Economics (Froeb) EXAM 2 KU
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UMANAGERIAL ECONOMICS (FROEB)EXAM 2 KU QUESTIONS AND VERIFIED
ANSWERS 100% GUARANTEE PASS
Individual demand - How many units an individual will purchase at a given price
Aggregate demand - also called market demand
the total number of units that will be purchased by a group of consumers at a given price
What kind of decision is pricing? - Extent decision
When should price be reduced? Increased? - Reduce price (increase quantity) if MR > MC
Increase price (reduce quantity) if MR < MC
What is the optimal price? - Where MR = MC
Price elasticity of demand - Measure of how responsive quantity demanded is to changes in price
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
if absolute value of e is >1 then demand is elastic
if absolute value of e is <1 then demand is inelastic
Estimated price elasticity = [(Qt-Q2)/(Q1+Q2)] / i(P1-P2)/(P1+P2)]
this equation is used to estimate demand from a price and quantity change
What happens to revenue when prices increase in a product with elastic demand? - Revenue decreases
,What happens to revenue when prices increase in a product with inelastic demand? - Revenue increases
The more elastic a product is the _____ the optimal price - lower
The five factors that affect elasticity:
(answer "more" or "less")
1. Products with close substitutes have ____ elastic demand
2. Products with any complements have _____ elastic demand
3. Demand for brands is _____ elastic than industry demand
4. In the long run, demand becomes _____ elastic
5. As price increases, demand becomes _____ elastic - 1. more
2. less
3. more
4. more
5. more
What are three other measures of elasticity that affect demand? - income elasticity
cross-price elasticity
advertising elasticity
Stay-even analysis - can be used to determine the quantity change required to offset a price change
%change quantity = %change price / (%change price + margin)
When is a proposed price increase profitable? (regarding stay-even quantity) - If the predicted quantity
loss is less than the stay-even quantity
%change Revenue - %change Revenue = %change Price + %change Quantity
, How to use elasticity to forecast changes in demand - %change Quantity = %change Price / (%change
Price + margin)
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short run and -1.8 in the long run. A
decrease in taxes on gasoline would
a) lower tax revenue in both the short and long run
b) raise tax revenue in both the short and long run
c) uraise utax urevenue uin uthe ushort urun ubut ulower utax urevenue uin uthe ulong urun
d) ulower utax urevenue uin uthe ushort urun ubut uraise utax urevenue uin uthe ulong urun u- uc) uraise utax
urevenue uin uthe ushort urun ubut ulower utax urevenue uin uthe ulong urun
Which uof uthe ufollowing uis utrue?
a) uNike uhas ua uless uelastic udemand ucurve uthan ushoes
b) uthe udemand ucurve ufor ugas uis umore uelastic uin uthe ushort urun uthan uin uthe ulong urun
c) ucigarettes uhave ua umore uelastic udemand uthan utelevisions
d) usalt uhas ua uless uelastic udemand uthan uice ucream u- ud) usalt uhas ua uless uelastic udemand uthan uice
ucream
Jim urecently ugraduated ufrom ucollege. uHis uincome uincreased utremendously ufrom u$5000 ua uyear uto
u$60000 ua uyear. uHe udecided uinstead uof urenting uhe uwill ubuy ua uhouse. uWhat utype uof ugoods udoes
uthis uimply uthat uhouses uare ufor uJim? u- unormal ugoods
Which uof uthe ufollowing ugoods uhas ua unegative uincome uelasticity uof udemand?
a) ucars
b) uitems ufrom udollar ustores
c) ushoes
d) ubread u- ub) uitems ufrom udollar ustores
An ueconomist uestimated uthe ucross-price uelasticity ufor upeanut ubutter uand ujelly uto ube u1.5. uBased uon
uthis uinformation, uwe uknow upeanut ubutter uand ujelly uare uwhat utype uof ugoods? u- uComplements
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